Economics and Finance Faculty Publications and Presentations

Can lower remittance costs improve human capital accumulation in Africa?

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To evaluate gains in human capital accumulation from reduction in remittance prices, this study constructs a general equilibrium model in which the choices to invest in human capital and to migrate are endogenous. The model is calibrated for a group of eight African economies which offer student loans, and the effect on human capital accumulation of decreasing the remittance price to the level recommended by the United Nations (3%) is numerically derived. It is found that reduction in remittance prices alters the decisions of households, leading in the aggregate to a decrease in interest rates, a curbing of the desire to migrate, and an increase human capital. Hence, the study offers the policy prescription that governments, both in nations where remittances originate and in those to which funds are sent, must continue to lower remittance prices, by, for example, improving access to mobile banking, especially since such policies are relatively immune to economic shocks.


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Journal of policy modeling